Treat early and late gates in the innovation funnel differently
Innovation funnel – management tool or monster?
With more and more organizations adopting a staged approach to innovation management, the funnel management process gets blamed for all sorts of innovation failure. These include bureaucracy, stifling creativity and endless risk reduction (refer to Tom Fishburne for a great example of this debate ).
I am a firm believer in applying the funnel as it is intended, as a decision-making tool to help optimnize the innovation portfolio. With this view, the funnel is helpful if it helps to reduce the number and impact of erroneous decisions. Now, bad decisions come in two types:
- false positives: continuing with a project when we should have stopped;
- false negatives: stopping with a project when we should have continued.
Risk reduction: minimize false positives
The traditional view of applying gates in the funnel focuses on the false positives. Stopping (or killing) projects that would continue on their risky and costly road to an ever decreasing pot of gold at the end of their rainbow. It is obvious that value is created in this way, given the amount of waste reported. The underlying mechanism of “escalation of commitment” that keeps feeding this waste can only be really addressed through a formal, fact-based, and independent decision-making process, such as a gate review.
The setting of such a gate review is to make sure the risks are in line with the costs, where the project under review is about to embark on significant commitments (in terms of costs, investment, resources, and trust – by partners, employees, and customers). Obviously, the focus must be on risks:
- eliminating the unnecessary risks by making sure that quality of plan and team are excellent;
- understanding the inherent risks in innovation because of the newness of market, technology, business model, and anything else we are innovating;
- validating that the portfolio risk (across the funnel) is in line with the innovation strategy.
However, this focus on risk is more suited to later stages in an innovation project; early stages need a different decision-making approach.
The front end: minimize false negatives
In the early stages of an innovation project (when resource commitments are low), decision-making should be focused on how to maximize the value from the resources applied. This requires a different mindset, since it is not about “what could go wrong” but about “what could go right”. These reviews should focus on questions such as:
- how can we maximize the target audience by defining the right value proposition;
- how can we capture most of the value in this space by differentiating from existing and new competitors;
- how can we use our assets and partnerships for sustainable profitability.
This type of review will support the entrepreneurship in the innovation team, it will help to combine ideas from several sources, and it supports meaningful target setting later on in the project. All these contribute to the positive climate needed to maximize the value from the innovation portfolio.
What does it mean for my process?
If your project is in a stage where costs are limited, make sure that management reviews (gate meetings and others) are about how to maximize value creation, not about risk minimization. Make sure the review goals, inputs, and preparations support this. It is not unlikely that other gate keepers are required for these early gates.
In a well designed innovation funnel, early gate reviews are about value creation, and late gate reviews are about risk minimization. The size of the costs (and other commitments) triggers the switch from one to the other. The minimum requirement for a good process is clarity on this aspect of gate meetings.
Do you have such a funnel?